25 Mistakes Businesses Make When Starting to Accept Credit Cards
When it comes to getting paid for your products or services, there are few options that top credit cards. That’s because accepting credit cards increases profitability, keeps you competitive, and are quick and easy to set-up. Credit cards are also the preferred payment method of customers. In fact, the triennial Federal Reserve Payments Study (FRPS) found that, “Total card payments grew from 103.5 billion with a value of $5.65 trillion in 2015 to 111.1 billion with a value of $5.98 trillion in 2016.” At the same time, when starting to accept credit cards there are mistakes that you should be aware of. If not, accepting cards will end-up being a costly endeavor that could hurt your business for years to come.
Mistakes When Starting to Accept Credit Cards
To prevent that from happening here are 25 mistakes that businesses that you need to avoid when starting to accept credit cards.
1. Not taking the time to shop for the right payment processor.
Not all payment processors are the same. That’s because each processor offers unique features. For example, if you run a brick and mortar business you’ll need hardware like POS terminal. If you process payments remotely you’ll need a virtual terminal or mobile card reader like Flint.
In other words, the first step you need to take is to determine how you’re going to process payments, your customer’s preferences, and the needs of your business. After you’ve narrowed down your selection of processors that fit your business, you then need to compare the rates, fees, and terms of each.
This may be a lengthy process, but it will be beneficial for your business in the long-run since it will eliminate future problems.
2. Choosing the processor with the lowest rate.
Obviously you want to work with a processor with the lowest rate possible. The thing is,the processor with the lowest rate doesn’t always have the lowest cost. In fact, processors offering the lowest rate tend to be the most expensive overall.
For example, if you were quoted a rate of 1.59 percent, you may end-up actually paying three percent once you start processing payment. The reason? It was a bait-and-switch tactic.
The processor knew you would sign-up for such an affordable rate. However, you didn’t take into account that low rate applied a small portion of your transactions. Remember, when you process payments the total processing cost consists of three separate parts: the processor’s cost, the bank’s cost, and the credit card companies’ cost. This means that the total cost is not dictated solely by a processor’s rate.
This can get a little confusing, so I suggest you review this breakdown of credit card processing fees for merchants.
3. Failing to realize that accepting credit cards comes with risks.
There’s a misconception that as a merchant it’s your right to accept credit cards. The reality is that for some business owners, such as online merchants or those classified as high-risk, there’s risk involved with allowing you to accept credit cards.
For example, for online customers, they have six-months to dispute a charge. That means that you’re borrowing this revenue until that six-month period has lapsed. If you’re not cautious, they could do some serious damage to your cash flow.
4. Settling for impersonal, blind email support.
What happens when you have a question about billing or a technical question? You’ll need to talk to an actual support staff member to address the question or concern.
If your processor doesn’t have 24/7 support, then make sure that they have a ticket system. This way your questions or issues are filed and you don’t have to constantly repeat yourself when you do speak with an actual person.
5. Ignoring volume requirements.
One benefit of working with a third party processor is that you won’t get hit with outrageous set up and recurring fees if your business processes a small volume of transactions each month.
However, the amount of transactions and dollar amounts will change the terms and rates associated with third party credit card processing. Make sure that the processor you work with doesn’t have any minimum or maximum volume commitments that could affect your rates and fees.
6. Leasing your terminals and paying a monthly fee.
I’m sure that a sales rep will try to convince you that you’re better offer to lease their hardware and pay a monthly fee. They’ll claim that it’s more affordable and protects you from situations like if the equipment breaks.
It’s usually much cheaper to actually purchase credit card equipment. Instead of dropping $50-$100 per month, you can buy a machine for around $300. There’s also free options like the Square card reader.
Furthermore, when avoid leasing equipment you avoid having to pay for equipment insurance and aren’t stuck being in a contract for the next several years.
7. Not reading the fine print on your processing agreement.
Research has found that 73 percent of us don’t read the fine print when signing up online. Even if you do read the terms and conditions, just 17 percent of us understand them.
Before signing up, take the time to read the small print so that you’re aware of charges like:
- Set up fees.
- Discount rates.
- Address verification fees.
- Ongoing fees for a payment gateway.
You also want to look for termination fees or any other hidden. If you’re unsure, ask either the processor or someone who is familiar with credit card contracts like a fellow business owner or consumer law expert.
8. Ignoring Payment Card Industry Data Security Standard (PCI DSS) compliance.
PCI DSS is a set of security requirements that have been established to protect cardholders’ account data from fraud. The PCI DSS were developed by the PCI Security Standards Council and includes American Express, Discover, MasterCard, Visa, and JCB International.
As a business owner, these standards require that all hardware and software that transmits a cardholders’ data must be compliant. If not, you’ll face massive fines, a loss of reputation, and event bankruptcy.
You can read the entire PCI DSS here, but you should also discuss this with your processor to determine your compliance level.
9. Falling into the bundled pricing trap.
“With bundled pricing a processor pays interchange fees to banks and assessment fees to card brands on behalf of a business. The processor then charges the business based on its own set of qualified, mid-qualified and non-qualified rates,” writes Ben Dwyer over at CardFellows.
As Due’s Angel Ruth further explains, “To make things even more confusing, these charges are not standard across all processors.” But, this is typically how a bundled or tiered pricing model would look like:
- Qualified: 1.59 percent + $0.05 for all card swipes.
- Mid-Qualified: 2.00 percent + $0.10 for all transactions involving a rewards or non-major credit card.
- Non-Qualified: 2.59 percent + $0.15 for all keyed-in transactions and all transactions that do not fit the criteria of your processor.
“The main issue with this model is that you may be given a too-good-to-be-true rate,” adds Angela. “That’s for merchants who fall into the qualified tier. Most businesses fall into the mid – and non-qualified tiers.
“To make matters worse, the criteria and rates for each of these tiers are subjective, so not only are you now paying more money, you may have no way in which to rectify the matter.”
As if that weren’t bad enough, this structure makes it impossible to “accurately compare rates among processors.”
Ultimately, tiered pricing is expensive, inconsistent, and less transparent, Unfortunately, there isn’t much to do about this except to educate yourself, review your statements, and contact your processor to see if the criteria has changed.
The good news is that you can work with a processor that offers a more favorable pricing model, such as interchange plus, so don’t fall in this trap if you don’t have to.
10. Accepting cancellation policy penalties.
Let’s keep this short and sweet.
Avoid early cancellation fees or lengthy contract terms. The last thing you want is to be stuck paying higher third party rates when your business outgrows your current processing needs.
11. Not having up-to-date equipment or software.
Your customers expect to be able to pay you the easiest, fastest, and safest way possible. In fact, you’re required to have terminals that can process NFC (like Apple Pay) and EMV (smart chips).
If you haven’t done so yet, it’s time to upgrade your hardware and software so that you can keep your customers satisfied and reduce fraudulent charges.
12. It’s easy to lose your ability to accept credit card payments.
Regardless the size of your business — yes, even if you’re raking in millions of dollars per quarter – if you have one percent of your transactions disputed during any given month the credit card merchant can block you from accepting credit cards.
If you rely primarily on credit card payments, then this is something that you can’t afford to ignore.
13. Not taking the proper steps to avoid chargebacks.
Continuing from the last point, when there’s a dispute that results in a chargeback. Chargebacks are just bad for your business since you’ll be hit with a fee and it raises a red flag to your payment provider that something is off. Simply put, you want to avoid chargebacks at all cost.
Start by knowing what the four reason codes are and then take the following steps:
- Have a clear return policy.
- Establish clear terms and conditions.
- Easily and quickly issue refunds.
- Provide outstanding customer service.
- For online merchants, make sure that your product descriptions are accurate.
- If you provide services, have a written agreement with your clients and customers.
- Don’t use stock photos since this could make customers feel like they’ve been misled.
- Never close a transaction without valid authorization.
14. Failing to ask the right questions.
When searching for payment processor, ask as many questions as possible. Again, you don’t want to sign a contact that you can’t get out of because the provider doesn’t fit your needs.
While not an extensive list, here are the questions that you should definitely be asking when looking for a payment processor:
- What fees will you be charged?
- Do you offer interchange plus fees?
- How much will I pay in annual fees?
- When are cash payments settled?
- How long will it take to set up my account?
- How will you be able to scale with my business?
- Do you support a wide range of credit cards?
- Do you also offer mobile payment solutions?
15. Not following the rules to a “T.”
When you find a processor and have been approved to start processing credit card payments, you need to play by their rules. For example, what information will need to process cards that aren’t present? For security purposes, there’s strict rules in place to place validate the transaction.
Work with your processor to learn their exact rules in and out so that you won’t face fines or get blocked from processing credit card payments.
16. Believing you’re not at risk.
Just because you’ve played by the rules and have avoided chargebacks doesn’t mean you’re in the clear. When you accept credit card payments there’s always a potential risk lurking around the corner.
For example, if you process a payment for $2,000, which isn’t the norm, your risk profile goes up. Additionally, your risk profile could change if you work with a questionable affiliate or in a high risk industry.
17. Not weighing the pros and cons of minimum payments.
I’m sure you’ve walked into a store only to see a sign that says, “$10 Minimum on Credit Card Purchases.” Even though you just wanted a cup of coffee, you either can leave or end-up spending more money than you thought.
Business owners do have the right to set a purchase minimum of up to $10 thanks to the Durbin Amendment of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Business owners can also add surcharges – unless you reside in Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas.
And, let’s not forget that you’re also charged a fee — usually two percent — whenever you process a credit card.
With all that in mind, if you’re a small business selling primarily less expensive items, like a coffee shop, a minimum requirement for credit card purchases may not be beneficial. However, most customers don’t have a problem spending at $10 at your business. Let’s not forget, most people prefer using plastic. So, it’s not a bad idea to require a minimum payment.
18. Never reviewing your monthly statements.
I get it. It eats-up a lot of time to thoroughly go over your monthly statements. But, it’s actually time well spent.
If you just chuck your statements into a drawer, or never login and view your statements online, how else are you going to understand your cash flow, rate charges, or uncover hidden costs?
If you’re confused about an item or term on your statement, don’t hesitate to call your processor for an explanation.
19. Not promoting that you accept credit cards.
Most of your customers may assume you do accept credit cards. But, it wouldn’t hurt to remind them. And, if you recently started accepting credit cards, then you need to definitely let your customers know.
Simply place signs that not only declare that hat you accept credit cards, but also feature the logos of the cards you do accept. I would place signs at both the front of your store and at the checkout counter.
If you’re an online business, place logos of the cards you accept throughout your site. You could even write some blog posts that explain the various payments methods you accept. I would even compose some posts that walk your audience through the payment process.
This is a simple way to increase impulse buys.
20. Not handling customer service issues in a timely manner.
This is just a part of Business 101. If you want to deliver a great customer experience, which will make them become repeat customers, then you need to go above and beyond when it comes to customer service.
For instance, if a customer has a question regarding a transaction and you respond ASAP, you’re not only delivering excellent customer service, you may even prevent a chargeback before it happens.
21. Declining to learn how to spot potential fraud.
I’m not trying to be a fear monger here, but nefarious individuals love to cause trouble for business owners — specifically SMBs. While you may not be able to completely prevent attacks, you can lower those odds by knowing how to spot fraudulent activity.
Do your due diligence by making sure that the billing and shipping addresses match and being cautious of large purchases. Also, make sure that you follow security best practices like encrypting data and not falling for phishing attacks.
And, don’t forget to share this knowledge with your team as well.
22. Not undergoing stricter underwriting.
If you’re accepting credit cards for the first time you’ll probably work with a processor that will accept your application with little due diligence. That’s fine for now, but when you reach revenue around $50,000 or more you’ll want to start working with a processor that is more strict with their underwriting.
In other words, they’ll assess how risky you are before you can accept credit cards. That sounds stressful, but it’s better than not being able to suddenly process credit cards.
23. Choosing not to develop multiple merchant relationships.
This is a smart move since it prevents you from hitting the panic button when your merchant provider shuts down your account.
So, instead of working with just one processor, you would process 40 percent with one merchant account, 30 percent with another, and 30 percent with yet another. This way if you get blocked with one processor, you can still accept payments through the other two.
This can get tricky, so work with an expert sooner than later to get this set up correctly.
24. Not keeping meticulous records.
In general, business owners are expected to keep accurate and detailed records. When it comes to credit card payments, this comes in useful when fighting chargebacks, such as customer forgetting that they made the purchase.
25. Making it difficult for customers to contact you.
Finally, how can you provide excellent customer service and battle chargebacks when your customers can’t contact you?
Make it easy for them to get in touch with you by plastering your contact information, mainly your phone number and email address, everywhere you possibly can.